“I was told that I had to take RMDs this year before I could carry over the remaining balance.” (Photo subject is the model.) – Getty Images/iStockphoto
I have a question that, while affecting only a small group of people, may raise broader concerns about required minimum distributions, rollovers, and retirement planning. I am 72 years old and will turn 73 this July. I had planned to defer all RMDs in my IRA and self-employed 401(k) until next year because I knew I would be taking two RMDs in 2027. I also want to avoid taking any RMDs from my current employer’s 401(k) since I’m still working full time and contributing to the plan.
I received $800,000 from my previous employer in Fidelity’s 401(k) plan. My plan is to roll this into my current 401(k) plan, which accepts rollovers, allowing me to defer RMDs from these funds until retirement.
The situation became even more complicated when my employer went bankrupt and was acquired by a new company. My job, paycheck, and benefits continued uninterrupted, but from November 2025 until about six weeks ago, the old 401(k) plan stopped accepting contributions and the new plan has not yet started operating or cannot be rolled over. Therefore, I cannot move my funds from Fidelity during this period.
This month, I contacted Fidelity to initiate the rollover. I was told I had to take an RMD this year before I could transfer my balance. As I understand it, distribution is mandatory; delaying receipt does not waive this requirement. Fidelity explains that RMDs must be accounted for before rolling over. They cannot hold RMDs if the remainder of the account is transferred, nor can the funds leave the account until required distributions are made.
The RMD for this 401(k) is approximately $25,000. My wife (the beneficiary) is 56 years old. At a 35% tax rate, I’d rather avoid paying about $8,750 in taxes. I still have about $3 million in two IRAs from which I will be taking RMDs next year, and I’m still earning a full salary.
To add insult to injury, Schwab, which was administering my new 401(k) plan, would not accept direct transfers between institutions. Their paperwork required Fidelity to write a check payable to Schwab Trust Bank, in favor of my account, and I then had to deliver the check.
I strongly do not want to accept RMD. It looks like I was penalized for moving the account: leaving it at Fidelity didn’t require a distribution, but trying to roll over would trigger a distribution. One alternative would be for Fidelity to allocate the entire balance (minus the 20% withholding tax) to me, use the $160,000 in the after-tax brokerage account to pay the withholding tax, and then transfer the entire amount to Charles Schwab. But the IRS-linked opportunity cost of $160,000, plus potential capital gains taxes from liquidating the investment, could be close to the cost of simply accepting an RMD.
While I recognize this is a “first world problem” – a high earner, 70+, still working, worrying about less than $10,000 in taxes – I’m frustrated. My best-laid plans were derailed by an unexpected bankruptcy and plan transition, and the requirement felt counterintuitive: I was forced to take a distribution simply because I wanted to move funds to a plan designed to defer future distributions.
I greatly admire your column for its financial insights and understanding of the psychological and family dynamics behind these decisions. Any guidance on how to handle this situation would be greatly appreciated.
To RMD or less than RMD
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Failure to claim an RMD by the deadline (usually December 31) may result in a penalty of 25% of the unclaimed RMD amount. – MarketWatch Illustration
Sometimes, even the best-laid plans can’t get past the brick walls.
And you, my friend, on the eve of your 73rd birthday, when your first RMD comes due, you hit a wall with no solution. RMDs must be distributed first within any year they mature, and cannot be rolled over even if they are rolled into another tax-deferred account (such as a 401(k) or IRA). This rule was not set by Charles Schwab SCHW or Fidelity, but by the IRS. Uncle Sam spoke.
The aforementioned brick wall comes with the proverbial shards of broken glass: The IRS says failure to claim an RMD by the deadline (usually December 31) can result in a penalty of 25% of the unclaimed RMD amount. If you are still working at age 73 and own 5% or less of your company, you can defer RMDs from that employer plan only until you retire (this does not apply to separate IRA accounts).
If you do complete the rollover before the RMD year begins (that is, before January 1, 2026), the funds may be consolidated into your current employer’s plan and a 2026 RMD will not be required. Bankruptcy-related delays triggered this unwelcome outcome, so your frustration is completely justified, but now knowing this won’t help you. But you don’t have a crystal ball, you have to abide by the rules of the game.
You came up with the idea of distributing the full amount – 20% of which is mandatory withholding – replacing the withheld amount out of pocket and completing the 60-day rollover. It’s a clever workaround, and technically possible, but you’re right in that the opportunity cost of liquidating other assets and potential capital gains taxes may outweigh these tax savings. Take the RMD and complete the flip. (Beneficiaries do not affect the RMD calculation.)
So what happened in the name of Uncle Sam? You’re confusing two rules and may be trying to circumvent one of them: First, if you’re still working at age 73 or older and your 401(k) belongs to your current employer, you can defer RMDs on that plan. Easy, right? Yes, on the surface. However, this exception does not apply to old 401(k) accounts from former employers. Therefore, your Fidelity account will be considered a separate inactive plan.
Rolling your old 401(k) into your current employer’s plan is exactly how people solve the RMD problem. Since this is an old 401(k), Fidelity is correct in believing that RMDs must be taken or formally accounted for before any rollover occurs. Technically, you can defer the actual withdrawal until April 1, 2027, but it will still count against your 2026 RMD. While you can defer taking the distribution, it must be resolved before any rollovers are made to the account this year.
Thank you for your feedback on The Moneylist’s approach to family dynamics and financial shenanigans. Your predicament doesn’t have the former problem, but you have something not unrelated: a friendly psychological battleground of self-will and determination that goes against your retirement accounts and IRS rules. When we try to find ways to avoid paying taxes or reduce our income, especially when you’re trying to limit health insurance premiums, it can be a creative but ultimately frustrating process.
The solution to your problem is somewhat inevitable: work with Fidelity, get your RMDs (either distributed to you in cash, subject to withholding, or deposited directly into a taxable account), and then follow their instructions to complete the rollover to Charles Schwab. While this may feel punitive, this satisfies IRS regulations and avoids a 25% penalty (or 10% if the RMD is corrected within two years). That problem aside, I have no doubt that you will put your ingenuity to good use.
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